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Palm: Getting Acquired? Or Just Sinking Fast?

There's some interesting news about Palm (PALM) halting production of its Pre, Pre Plus, and Pixi handsets. A moment of thought -- and a look at the company's list of products -- quickly brings you to the conclusion that this list includes all of the phones it currently sells, at least one of which is pretty new. Along with the thought comes the question, "What does it mean?" Is the company slowing down activity to close an acquisition, or is it just losing the race for customers?

Apparently three different sources have confirmed to OTR Global that future handset orders are suspended:

Key sources in the Taiwan handset supply chain said Palm Inc. has ordered assembler Foxconn International Holdings Co. Ltd. to suspend production of both the Pre and Pre+ in February. "The decision is very sudden, and Foxconn was told to reduce all February Pre forecast to zero on Wednesday and nobody knows whether shipment will resume in March," said a key source.
The other take, from Engadget, is that it's just for Chinese New Year. The company sent a statement:
Palm regularly adjusts its product manufacturing levels to manage inventory. In anticipation of the Verizon Wireless launch and Chinese New Year, we increased production levels prior to February, and anticipate ramping production back up after the Chinese New Year ends.
But Foxconn is based in Taiwan, and apparently the holiday lasts four days there, and it starts this year on February 14. Shutting down until the end of the month would be two weeks.

Maybe Palm is telling the truth that the suspension is to "manage inventory." A two-week shutdown to manage inventory? That would indicate a pretty big surprise, given that companies tend to manage production inventory on at least a monthly basis and are constantly making adjustments to match demand forecasting as closely as possible. It also doesn't mesh with the evidence that AT&T (T) would be getting the Pre in May. You'd think that would mean a boost in production, not reduction.

Not all has been well in the land of the Palm. Piper Jaffray analyst T. Michael Walkley called Pre sales through Verizon (VZ) "modest," and said that he's "slightly disappointed."

Walkley says the company is on track to meet his forecast of 1 million Web OS-based phones in the February quarter. To hit his 1.5 million unit goal for the May quarter, he says, will require "ramping sell-through trends at Verizon."
According to comScore (though I do have my doubts about the validity of its numbers), Palm's platform lost 2.2 points of smartphone market share between the third and fourth calendar quarters of 2009.

The charitable interpretation is that Palm might be getting ready to be acquired. However, talking the company's statement at its word, the harsher view is that the company is foundering. The latest models were supposed to be Palm's life saver. But maybe the ring of safety is one of lead.

Image via Flickr user Antoine Hubert, CC 2.0.